On the Offensive
Rigas clan blames underlings for Adelphia's financial ruin
By John M. Higgins -- Broadcasting & Cable, 3/7/2004 7:00:00 PM
Peter Fleming stood in a Manhattan courtroom and hammered home to a jury the sins of John J. Rigas. He slammed the fallen Adelphia Communications founder as "crooked." He accused him of grabbing hundreds of millions of dollars worth of Adelphia stock "he didn't pay for." The decadent mogul even had the audacity to fly Christmas trees to his daughter in New York on the company jet.
The righteous rhetoric of any good prosecutor? Guess again. Fleming is Rigas's defense attorney, the guy he's counting on to keep him out of jail. Normally, you pay your lawyer to say nice things about you. But Fleming is playing hard ball. His goal is to defuse charges, to show his client isn't afraid.
Or in the words of John Kerry: "Bring it on."
His hit-me-with-your-best-shot defense is a team effort. The same strategy covers two Rigas sons, Tim and Michael, and a former Adelphia exec in their trial over the collapse of Adelphia.
The feds' case against the family has been clear for months. They accuse the Rigas clan of using publicly traded Adelphia as a private piggy bank, ultimately triggering its financial ruin. The alleged abuses were large ($3 billion in loans against the cable operators' credit) and small (Tim Rigas' slipper orders, using the company jet for Caribbean trysts.)
"John Rigas stole tens of millions of dollars from Adelphia and used tens of millions of dollars for his own personal purposes," charges Assistant U.S. Attorney Richard Owens.
The Rigases disagree. No mea culpas, here. Instead, the defense went on the offensive. If anything was wrong, the family didn't do it. The high-flying Rigases say the culprits were a coterie of gossipy, sinister accounting department staffers who kept top executives out of the loop and privately ridiculed them via Internet instant messaging. In short, the accountants made me do it. (Coincidentally, 10 of these staffers have agreed to testify against the Rigases after securing either immunity or plea bargains.)
The prosecution's strongest weapon will be ex-Adelphia treasurer Jim Brown, who was intimately involved in Adelphia's financial transactions and worked closely with ex-CFO Tim Rigas. Brown has pleaded guilty to fraud charges but has not yet been sentenced.
The strongest weapon for the Rigases and the fourth defendant, former Director of Internal Reporting Michael Mulcahey, are Adelphia's lawyers and accountants. Many of the transactions in question were approved by Adelphia's outside law and auditing firms. In the aftermath of the Arthur Andersen/Enron debacle, that may not carry complete financial absolution, but it's a good start.
In case it doesn't wash, defense lawyers have an ace up their sleeves, depicting the Rigases as inattentive or disconnected from many of the financial transactions under fire. Here's how central casting plays out.
John Rigas, 79, had a triple-bypass heart operation, was treated for prostate cancer, and ceded most CEO duties to Tim. (Prosecutors counter he was connected enough to draw on company cash accounts so heavily Tim put him on a $1 million-a-month allowance.)
As de facto CEO and official CFO, Tim Rigas was overwhelmed by the 27 people reporting directly to him. His attorney, Paul Grand, says he left numerous details of even big transactions to Brown. Grand claims that many of the transactions were approved "in hallway conversations." That depiction comes as a surprise to bankers and cable-industry execs, who saw Tim as a control freak about finances. "I never saw Tim as inattentive as they portray him," said one investment banker who worked for the company.
Michael Rigas was in charge of operations, not finance. Part of the securities-fraud charges center on allegedly inflated operating results reported to investors. "Not a single witness will say Michael Rigas directed or asked them to commit a crime," his attorney, Andrew Levander, says. The caveat: Prosecutors don't have to prove Michael Rigas did. This is a conspiracy case. Prosecutors only have to demonstrate that he participated in a portion of a conspiracy to defraud the company, lenders, or investors.
A central charge is that Adelphia overstated operating cash flow to mislead Wall Street, which, in turn, propped up the value of the family's stock holdings and kept banks from calling margin loans to purchase some of that stock. Anyone involved in the chain of transactions could be convicted of conspiracy.
Fleming argued that Adelphia is still a substantial company serving more than 5 million cable subscribers. (That's thanks, in part, to Chapter 11, which rid the company of half its debt.) "This is a case where Adelphia, supposedly looted by these defendants, prospers with a bright future, while John Rigas, in his 80th year, has lost all that he built, including his wealth," Fleming said. "I believe you will find this case is tragic."
Tragedy has many faces. Fleming ignores the most obvious: The billions of dollars outside stockholders and unsecured creditors lost because the Rigas financial house of cards collapsed.
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